What Has Government Done to Our Money

W H G D
 O M

W H G D
 O M
M N. R
LvMIMISES INSTITUTE

Copyright © 1991, 2005, 2008 Ludwig von Mises Institute
Copyright © 1963, 1985, 1990 by Murray N. Rothbard
Copyright © 2005 Ludwig von Mises Institute, ﬁfth edition
Copyright © 2010 Ludwig von Mises Institute and published
under the Creative Commons Attribution License 3.0.
http://creativecommons.org/licenses/by/3.0/
Published by Ludwig von Mises Institute, 518 West Magnolia Avenue,
Auburn, Alabama 36832
Mises.org
ISBN: 978-1-61016-142-8

v
C
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Money in a Free Society . . . . . . . . . . . . . . . . . . . . 4
1. The Value of Exchange. . . . . . . . . . . . . . . . . . 4
2. Barter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Indirect Exchange . . . . . . . . . . . . . . . . . . . . . 6
4. Beneﬁts of Money . . . . . . . . . . . . . . . . . . . . 10
5. The Monetary Unit . . . . . . . . . . . . . . . . . . . 12
6. The Shape of Money. . . . . . . . . . . . . . . . . . . 15
7. Private Coinage . . . . . . . . . . . . . . . . . . . . . . 16
8. The “Proper” Supply of Money. . . . . . . . . . . 20
9. The Problem of “Hoarding” . . . . . . . . . . . . . 26
10. Stabilize the Price Level? . . . . . . . . . . . . . . . 31
11. Coexisting Moneys . . . . . . . . . . . . . . . . . . . 33
12. Money Warehouses . . . . . . . . . . . . . . . . . . . 36
13. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
III. Government Meddling With Money . . . . . . . . . 49
1. The Revenue of Government . . . . . . . . . . . . 49
2. The Economic Eﬀects of Inﬂation . . . . . . . . 51
3. Compulsory Monopoly of the Mint . . . . . . . 56
4. Debasement . . . . . . . . . . . . . . . . . . . . . . . . . 58
5. Gresham’s Law and Coinage . . . . . . . . . . . . 59
a. Bimetallism . . . . . . . . . . . . . . . . . . . . . . 59
b. Legal Tender. . . . . . . . . . . . . . . . . . . . . . 62
6. Summary: Government and Coinage. . . . . . 64
7. Permitting Banks to Refuse Payment . . . . . . 65
8. Central Banking: Removing the Checks
on Inﬂation . . . . . . . . . . . . . . . . . . . . . . . . . 68

vi What Has Government Done to Our Money?
9. Central Banking: Directing the Inﬂation. . . 73
10. Going Oﬀ the Gold Standard . . . . . . . . . . . 75
11. Fiat Money and the Gold Problem . . . . . . . . 78
12. Fiat Money and Gresham’s Law . . . . . . . . . . 81
13. Government and Money . . . . . . . . . . . . . . . 85
IV. The Monetary Breakdown of the West . . . . . . . . 88
1. Phase I: The Classical Gold Standard,
1815–1914 . . . . . . . . . . . . . . . . . . . . . . . . . . 89
2. Phase II: World War I and After . . . . . . . . . 92
3. Phase III: The Gold Exchange Standard
(Britain and the United States) 1926–1931 . . 93
4. Phase IV: Fluctuating Fiat Currencies,
1931–1945 . . . . . . . . . . . . . . . . . . . . . . . . . . 96
5. Phase V: Bretton Woods and the New
Gold Exchange Standard (the United
States) 1945–1968 . . . . . . . . . . . . . . . . . . . . 98
6. Phase VI: The Unraveling of Bretton
Woods, 1968–1971 . . . . . . . . . . . . . . . . . . 102
7. Phase VII: The End of Bretton Woods:
Fluctuating Fiat Currencies,
August–December, 1971 . . . . . . . . . . . . . . 105
8. Phase VIII: The Smithsonian Agreement,
December 1971–February 1973 . . . . . . . . . 106
9. Phase IX: Fluctuating Fiat Currencies,
March 1973–? . . . . . . . . . . . . . . . . . . . . . . 108
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
About the Mises Institute . . . . . . . . . . . . . . . . . . . . . 117

1
F    more tangled, more
confused than money. Wrangles abound over “tight
money” vs. “easy money,” over the roles of the Federal
Reserve System and the Treasury, over various versions
of the gold standard, etc. Should the government pump
money into the economy or siphon it out? Which
branch of the government? Should it encourage credit
or restrain it? Should it return to the gold standard? If
so, at what rate? These and countless other questions
multiply, seemingly without end.
Perhaps the Babel of views on the money question
stems from man’s propensity to be “realistic,” i.e., to
study only immediate political and economic prob-
lems. If we immerse ourselves wholly in day-to-day
aﬀairs, we cease making fundamental distinctions,
or asking the really basic questions. Soon, basic issues
are forgotten, and aimless drift is substituted for ﬁrm
adherence to principle. Often we need to gain perspec-
tive, to stand aside from our everyday aﬀairs in order to
understand them more fully. This is particularly true in
our economy, where interrelations are so intricate that
I.
I

2 What Has Government Done to Our Money?
we must isolate a few important factors, analyze them,
and then trace their operations in the complex world.
This was the point of “Crusoe economics,” a favorite
device of classical economic theory. Analysis of Crusoe
and Friday on a desert island, much abused by critics
as irrelevant to today’s world, actually performed the
very useful function of spotlighting the basic axioms
of human action.
Of all the economic problems, money is possibly the
most tangled, and perhaps where we most need per-
spective. Money, moreover, is the economic area most
encrusted and entangled with centuries of government
meddling. Many people—many economists—usu-
ally devoted to the free market stop short at money.
Money, they insist, is diﬀerent; it must be supplied by
government and regulated by government. They never
think of state control of money as interference in the
free market; a free market in money is unthinkable
to them. Governments must mint coins, issue paper,
deﬁne “legal tender,” create central banks, pump money
in and out, “stabilize the price level,” etc.
Historically, money was one of the ﬁrst things con-
trolled by government, and the free market “revolution”
of the eighteenth and nineteenth centuries made very
little dent in the monetary sphere. So it is high time
that we turn fundamental attention to the life-blood
of our economy—money.
Let us ﬁrst ask ourselves the question: Can money
be organized under the freedom principle? Can we have
a free market in money as well as in other goods and

Murray N. Rothbard 3
services? What would be the shape of such a market?
And what are the eﬀects of various governmental con-
trols? If we favor the free market in other directions, if
we wish to eliminate government invasion of person
and property, we have no more important task than to
explore the ways and means of a free market in money.

4
1.
The Value of Exchange
H   ? Clearly, Robinson Crusoe
had no need for money. He could not have eaten gold
coins. Neither would Crusoe and Friday, perhaps
exchanging ﬁsh for lumber, need to bother about
money. But when society expands beyond a few fami-
lies, the stage is already set for the emergence of money.
To explain the role of money, we must go even
further back, and ask: why do men exchange at all?
Exchange is the prime basis of our economic life.
Without exchanges, there would be no real econ-
omy and, practically, no society. Clearly, a voluntary
exchange occurs because both parties expect to beneﬁt.
An exchange is an agreement between A and B to trans-
fer the goods or services of one man for the goods and
services of the other. Obviously, both beneﬁt because
each values what he receives in exchange more than
what he gives up. When Crusoe, say, exchanges some
ﬁsh for lumber, he values the lumber he “buys” more
II.
M   F S

Murray N. Rothbard 5
than the ﬁsh he “sells,” while Friday, on the contrary,
values the ﬁsh more than the lumber. From Aristotle to
Marx, men have mistakenly believed that an exchange
records some sort of equality of value—that if one
barrel of ﬁsh is exchanged for ten logs, there is some
sort of underlying equality between them. Actually, the
exchange was made only because each party valued
the two products in diﬀ erent order.
Why should exchange be so universal among man-
kind? Fundamentally, because of the great variety in
nature: the variety in man, and the diversity of location
of natural resources. Every man has a diﬀerent set of
skills and aptitudes, and every plot of ground has its own
unique features, its own distinctive resources. From this
external natural fact of variety come exchanges; wheat
in Kansas for iron in Minnesota; one man’s medical
services for another’s playing of the violin. Specialization
permits each man to develop his best skill, and allows
each region to develop its own particular resources. If
no one could exchange, if every man were forced to be
completely self-suﬃcient, it is obvious that most of us
would starve to death, and the rest would barely remain
alive. Exchange is the lifeblood, not only of our economy,
but of civilization itself.
2.
Barter
Yet, direct exchange of useful goods and services
would barely suﬃce to keep an economy going above

6 What Has Government Done to Our Money?
the primitive level. Such direct exchange—or barter—
is hardly better than pure self-suﬃciency. Why is this?
For one thing, it is clear that very little production
could be carried on. If Jones hires some laborers to
build a house, with what will he pay them? With
parts of the house, or with building materials they
could not use? The two basic problems are “indivis-
ibility” and “lack of coincidence of wants.” Thus, if
Smith has a plow, which he would like to exchange
for several diﬀerent things—say, eggs, bread, and
a suit of clothes—how can he do so? How can he
break up the plow and give part of it to a farmer and
another part to a tailor? Even where the goods are
divisible, it is generally impossible for two exchangers
to ﬁnd each other at the same time. If A has a supply
of eggs for sale, and B has a pair of shoes, how can
they get together if A wants a suit? And think of the
plight of an economics teacher who has to ﬁnd an
egg-producer who wants to purchase a few econom-
ics lessons in return for his eggs! Clearly, any sort of
civilized economy is impossible under direct exchange.
3.
Indirect Exchange
But man discovered, in the process of trial and error,
the route that permits a greatly-expanding economy:
indirect exchange. Under indirect exchange, you sell
your product not for a good which you need directly,
but for another good which you then, in turn, sell for

Murray N. Rothbard 7
the good you want. At ﬁrst glance, this seems like a
clumsy and round-about operation. But it is actually
the marvelous instrument that permits civilization to
develop.
Consider the case of A, the farmer, who wants to
buy the shoes made by B. Since B doesn’t want his eggs,
he ﬁnds what B does want—let’s say butter. A then
exchanges his eggs for C’s butter, and sells the butter
to B for shoes. He ﬁrst buys the butter not because he
wants it directly, but because it will permit him to get
his shoes. Similarly, Smith, a plow-owner, will sell his
plow for one commodity which he can more readily
divide and sell—say, butter—and will then exchange
parts of the butter for eggs, bread, clothes, etc. In both
cases, the superiority of butter—the reason there is
extra demand for it beyond simple consumption—is
its greater marketability. If one good is more market-
able than another—if everyone is conﬁdent that it will
be more readily sold—then it will come into greater
demand because it will be used as a medium of exchange.
It will be the medium through which one specialist can
exchange his product for the goods of other specialists.
Now just as in nature there is a great variety
of skills and resources, so there is a variety in the
marketability of goods. Some goods are more widely
demanded than others, some are more divisible into
smaller units without loss of value, some more durable
over long periods of time, some more transportable
over large distances. All of these advantages make for
greater marketability. It is clear that in every society,

8 What Has Government Done to Our Money?
the most marketable goods will be gradually selected
as the media for exchange. As they are more and more
selected as media, the demand for them increases
because of this use, and so they become even more
marketable. The result is a reinforcing spiral: more
marketability causes wider use as a medium which
causes more marketability, etc. Eventually, one or two
commodities are used as general media—in almost
all exchanges—and these are called money.
Historically, many diﬀerent goods have been used as
media: tobacco in colonial Virginia, sugar in the West
Indies, salt in Abyssinia, cattle in ancient Greece, nails
in Scotland, copper in ancient Egypt, and grain, beads,
tea, cowrie shells, and ﬁshhooks. Through the centu-
ries, two commodities, gold and silver, have emerged as
money in the free competition of the market, and have
displaced the other commodities. Both are uniquely
marketable, are in great demand as ornaments, and
excel in the other necessary qualities. In recent times,
silver, being relatively more abundant than gold, has
been found more useful for smaller exchanges, while
gold is more useful for larger transactions. At any rate,
the important thing is that whatever the reason, the
free market has found gold and silver to be the most
eﬃcient moneys.
Th is process: the cumulative development of a
medium of exchange on the free market—is the only
way money can become established. Money cannot
originate in any other way, neither by everyone sud-
denly deciding to create money out of useless material,

Murray N. Rothbard 9
nor by government calling bits of paper “money.” For
embedded in the demand for money is knowledge of
the money-prices of the immediate past; in contrast to
directly-used consumers’ or producers’ goods, money
must have preexisting prices on which to ground
a demand. But the only way this can happen is by
beginning with a useful commodity under barter, and
then adding demand for a medium for exchange to the
previous demand for direct use (e.g., for ornaments,
in the case of gold).1 Thus, government is powerless to
create money for the economy; it can only be developed
by the processes of the free market.
A most important truth about money now emerges
from our discussion: money is a commodity. Learning
this simple lesson is one of the world’s most impor-
tant tasks. So often have people talked about money
as something much more or less than this. Money
is not an abstract unit of account, divorceable from
a concrete good; it is not a useless token only good
for exchanging; it is not a “claim on society”; it is
not a guarantee of a ﬁ xed price level. It is simply a
commodity. It diﬀers from other commodities in
being demanded mainly as a medium of exchange.
But aside from this, it is a commodity—and, like
all commodities, it has an existing stock, it faces
demands by people to buy and hold it, etc. Like all
1 On the origin of money, cf. Carl Menger, Principles of Economics
(Glencoe, Ill.: Free Press, 1950), pp. 257–71; Ludwig von Mises, The
Theory of Money and Credit, 3rd ed. (New Haven, Conn.: Yale University
Press, 1951), pp. 97–123.

10 What Has Government Done to Our Money?
commodities, its “price”—in terms of other goods—is
determined by the interaction of its total supply, or
stock, and the total demand by people to buy and
hold it. (People “buy” money by selling their goods
and services for it, just as they “sell” money when
they buy goods and services.)
4.
Beneﬁts of Money
The emergence of money was a great boon to the
human race. Without money—without a general
medium of exchange—there could be no real spe-
cialization, no advancement of the economy above
a bare, primitive level. With money, the problems of
indivisibility and “coincidence of wants” that plagued
the barter society all vanish. Now, Jones can hire
laborers and pay them in . . . money. Smith can sell
his plow in exchange for units of . . . money. The
money-commodity is divisible into small units, and
it is generally acceptable by all. And so all goods and
services are sold for money, and then money is used to
buy other goods and services that people desire. Because
of money, an elaborate “structure of production” can
be formed, with land, labor services, and capital goods
cooperating to advance production at each stage and
receiving payment in money.
The establishment of money conveys another great
beneﬁt. Since all exchanges are made in money, all the
exchange-ratios are expressed in money, and so people

Murray N. Rothbard 11
can now compare the market worth of each good to
that of every other good. If a TV set exchanges for
three ounces of gold, and an automobile exchanges
for sixty ounces of gold, then everyone can see that
one automobile is “worth” twenty TV sets on the
market. These exchange-ratios are prices, and the
money-commodity serves as a common denominator
for all prices. Only the establishment of money-prices
on the market allows the development of a civilized
economy, for only they permit businessmen to calcu-
late economically. Businessmen can now judge how
well they are satisfying consumer demands by seeing
how the selling-prices of their products compare with
the prices they have to pay productive factors (their
“costs”). Since all these prices are expressed in terms
of money, the businessmen can determine whether
they are making proﬁts or losses. Such calculations
guide businessmen, laborers, and landowners in their
search for monetary income on the market. Only
such calculations can allocate resources to their most
productive uses—to those uses that will most satisfy
the demands of consumers.
Many textbooks say that money has several func-
tions: a medium of exchange, unit of account, or
“measure of values,” a “store of value,” etc. But it
should be clear that all of these functions are simply
corollaries of the one great function: the medium of
exchange. Because gold is a general medium, it is most
marketable, it can be stored to serve as a medium in
the future as well as the present, and all prices are

12 What Has Government Done to Our Money?
expressed in its terms.2 Because gold is a commodity
medium for all exchanges, it can serve as a unit of
account for present, and expected future, prices. It is
important to realize that money cannot be an abstract
unit of account or claim, except insofar as it serves as
a medium of exchange.
5.
The Monetary Unit
Now that we have seen how money emerged, and
what it does, we may ask: how is the money-commodity
used? Speciﬁcally, what is the stock, or supply, of money
in society, and how is it exchanged?
In the ﬁrst place, most tangible physical goods are
traded in terms of weight. Weight is the distinctive
unit of a tangible commodity, and so trading takes
place in terms of units like tons, pounds, ounces,
grains, grams, etc.3 Gold is no exception. Gold, like
other commodities, will be traded in units of weight.4
It is obvious that the size of the common unit cho-
sen in trading makes no diﬀerence to the economist.
One country, on the metric system, may prefer to ﬁgure
2 Money does not “measure” prices or values; it is the common denomi-
nator for their expression. In short, prices are expressed in money; they
are not measured by it.
3 Even those goods nominally exchanging in terms of volume (bale,
bushel, etc.) tacitly assume a standard weight per unit volume.
4 One of the cardinal virtues of gold as money is its homogeneity—unlike
many other commodities, it has no diﬀerences in quality. An ounce of
pure gold equals any other ounce of pure gold the world over.

Murray N. Rothbard 13
in grams; England or America may prefer to reckon
in grains or ounces. All units of weight are convertible
into each other; one pound equals sixteen ounces; one
ounce equals 437.5 grains or 28.35 grams, etc.
Assuming gold is chosen as the money, the size of
the gold-unit used in reckoning is immaterial to us.
Jones may sell a coat for one gold ounce in America,
or for 28.35 grams in France; both prices are identical.
All this might seem like laboring the obvious,
except that a great deal of misery in the world would
have been avoided if people had fully realized these
simple truths. Nearly everyone, for example, thinks
of money as abstract units for something or other,
each cleaving uniquely to a certain country. Even
when countries were on the “gold standard,” people
thought in similar terms. American money was “dol-
lars,” French was “francs,” German “marks,” etc.
All these were admittedly tied to gold, but all were
considered sovereign and independent, and hence it
was easy for countries to “go oﬀ the gold standard.”
Yet all of these names were simply names for units of
weight of gold or silver.
The British “pound sterling” originally signiﬁed
a pound weight of silver. And what of the dollar?
The dollar began as the generally applied name of an
ounce weight of silver coined by a Bohemian Count
named Schlick, in the sixteenth century. The Count
of Schlick lived in Joachim’s Valley or Jaochimsthal.
The Count’s coins earned a great reputation for their
uniformity and ﬁneness, and they were widely called

14 What Has Government Done to Our Money?
“Joachim’s thalers,” or, ﬁnally, “thaler.” The name
“dollar” eventually emerged from “thaler.”
On the free market, then, the various names that
units may have are simply deﬁnitions of units of weight.
When we were “on the gold standard” before 1933,
people liked to say that the “price of gold” was “ﬁxed
at twenty dollars per ounce of gold.” But this was a
dangerously misleading way of looking at our money.
Actually, “the dollar” was deﬁned as the name for
(approximately) 1⁄20 of an ounce of gold. It was there-
fore misleading to talk about “exchange rates” of one
country’s currency for another. The “pound sterling”
did not really “exchange” for ﬁve “dollars.”5 The dol-
lar was deﬁned as 1⁄20 of a gold ounce, and the pound
sterling was, at that time, deﬁned as the name for ¼
of a gold ounce, simply traded for 5 ⁄20 of a gold ounce.
Clearly, such exchanges, and such a welter of names,
were confusing and misleading. How they arose is
shown below in the chapter on government meddling
with money. In a purely free market, gold would
simply be exchanged directly as “grams,” grains, or
ounces, and such confusing names as dollars, francs,
etc., would be superﬂuous. Therefore, in this section,
we will treat money as exchanging directly in terms
of ounces or grams.
Clearly, the free market will choose as the common
unit whatever size of the money-commodity is most
5 Actually, the pound sterling exchanged for $4.87, but we are using $5
for greater convenience of calculation.

Murray N. Rothbard 15
convenient. If platinum were the money, it would likely
be traded in terms of fractions of an ounce; if iron were
used, it would be reckoned in pounds or tons. Clearly,
the size makes no diﬀerence to the economist.
6.
The Shape of Money
If the size or the name of the money-unit makes
little economic diﬀerence; neither does the shape of the
monetary metal. Since the commodity is the money,
it follows that the entire stock of the metal, so long as
it is available to man, constitutes the world’s stock of
money. It makes no real diﬀerence what shape any of
the metal is at any time. If iron is the money, then all
the iron is money, whether it is in the form of bars,
chunks, or embodied in specialized machinery.6 Gold
has been traded as money in the raw form of nuggets,
as gold dust in sacks, and even as jewelry. It should
not be surprising that gold, or other moneys, can be
traded in many forms, since their important feature
is their weight.
It is true, however, that some shapes are often more
convenient than others. In recent centuries, gold and
silver have been broken down into coins, for smaller,
day-to-day transactions, and into larger bars for bigger
transactions. Other gold is transformed into jewelry
and other ornaments. Now, any kind of transformation
6 Iron hoes have been used extensively as money, both in Asia and Africa.

16 What Has Government Done to Our Money?
from one shape to another costs time, eﬀort, and other
resources. Doing this work will be a business like any
other, and prices for this service will be set in the usual
manner. Most people agree that it is legitimate for
jewelers to make ornaments out of raw gold, but they
often deny that the same applies to the manufacture
of coins. Yet, on the free market, coinage is essentially
a business like any other.
Many people believed, in the days of the gold stan-
dard, that coins were somehow more “really” money
than plain, uncoined gold “bullion” (bars, ingots, or
any other shape). It is true that coins commanded a
premium over bullion, but this was not caused by any
mysterious virtue in the coins; it stemmed from the fact
that it cost more to manufacture coins from bullion
than to remelt coins back into bullion. Because of this
diﬀerence, coins were more valuable on the market.
7.
Private Coinage
The idea of private coinage seems so strange today
that it is worth examining carefully. We are used to
thinking of coinage as a “necessity of sovereignty.” Yet,
after all, we are not wedded to a “royal prerogative,”
and it is the American concept that sovereignty rests,
not in government, but in the people.
How would private coinage work? In the same
way, we have said, as any other business. Each minter
would produce whatever size or shape of coin is most

Murray N. Rothbard 17
pleasing to his customers. The price would be set by
the free competition of the market.
The standard objection is that it would be too
much trouble to weigh or assay bits of gold at every
transaction. But what is there to prevent private minters
from stamping the coin and guaranteeing its weight
and ﬁneness? Private minters can guarantee a coin at
least as well as a government mint. Abraded bits of
metal would not be accepted as coin. People would
use the coins of those minters with the best reputation
for good quality of product. We have seen that this is
precisely how the “dollar” became prominent—as a
competitive silver coin.
Opponents of private coinage charge that fraud
would run rampant. Yet, these same opponents would
trust government to provide the coinage. But if govern-
ment is to be trusted at all, then surely, with private
coinage, government could at least be trusted to prevent
or punish fraud. It is usually assumed that the preven-
tion or punishment of fraud, theft, or other crimes is
the real justiﬁcation for government. But if government
cannot apprehend the criminal when private coinage
is relied upon, what hope is there for a reliable coinage
when the integrity of the private market place opera-
tors is discarded in favor of a government monopoly
of coinage? If government cannot be trusted to ferret
out the occasional villain in the free market in coin,
why can government be trusted when it ﬁnds itself
in a position of total control over money and may
debase coin, counterfeit coin, or otherwise with full

18 What Has Government Done to Our Money?
legal sanction perform as the sole villain in the market
place? It is surely folly to say that government must
socialize all property in order to prevent anyone from
stealing property. Yet the reasoning behind abolition
of private coinage is the same.
Moreover, all modern business is built on guaran-
tees of standards. The drug store sells an eight ounce
bottle of medicine; the meat packer sells a pound of
beef. The buyer expects these guarantees to be accu-
rate, and they are. And think of the thousands upon
thousands of specialized, vital industrial products that
must meet very narrow standards and speciﬁcations.
The buyer of a ½ inch bolt must get a ½ inch bolt and
not a mere 3⁄8 inch.
Yet, business has not broken down. Few people
suggest that the government must nationalize the
machine-tool industry as part of its job of defending
standards against fraud. The modern market economy
contains an inﬁnite number of intricate exchanges,
most depending on deﬁnite standards of quantity
and quality. But fraud is at a minimum, and that
minimum, at least in theory, may be prosecuted. So it
would be if there were private coinage. We can be sure
that a minter’s customers, and his competitors, would
be keenly alert to any possible fraud in the weight or
ﬁneness of his coins.7
7 See Herbert Spencer, Social Statics (New York: D. Appleton 1890),
p. 438.

Murray N. Rothbard 19
Champions of the government’s coinage monopoly
have claimed that money is diﬀerent from all other
commodities, because “Gresham’s Law” proves that
“bad money drives out good” from circulation. Hence,
the free market cannot be trusted to serve the public
in supplying good money. But this formulation rests
on a misinterpretation of Gresham’s famous law. The
law really says that “money overvalued artiﬁcially by
government will drive out of circulation artiﬁcially
undervalued money.” Suppose, for example, there are
one-ounce gold coins in circulation. After a few years
of wear and tear, let us say that some coins weigh only
.9 ounces. Obviously, on the free market, the worn
coins would circulate at only 90 percent of the value
of the full-bodied coins, and the nominal face-value of
the former would have to be repudiated.8 If anything,
it will be the “bad” coins that will be driven from the
market. But suppose the government decrees that
everyone must treat the worn coins as equal to new,
fresh coins, and must accept them equally in payment
of debts. What has the government really done? It has
imposed price control by coercion on the “exchange
rate” between the two types of coin. By insisting on
the par-ratio when the worn coins should exchange
at 10 percent discount, it artiﬁcially overvalues the
8 To meet the problem of wear-and-tear, private coiners might either set
a time limit on their stamped guarantees of weight, or agree to recoin
anew, either at the original or at the lower weight. We may note that in
the free economy there will not be the compulsory standardization of
coins that prevails when government monopolies direct the coinage.

20 What Has Government Done to Our Money?
worn coins and undervalues new coins. Consequently,
everyone will circulate the worn coins, and hoard or
export the new. “Bad money drives out good money,”
then, not on the free market, but as the direct result
of governmental intervention in the market.
Despite never-ending harassment by governments,
making conditions highly precarious, private coins
have ﬂourished many times in history. True to the
virtual law that all innovations come from free indi-
viduals and not the state, the ﬁrst coins were minted
by private individuals and goldsmiths. In fact, when
the government ﬁrst began to monopolize the coinage,
the royal coins bore the guarantees of private bankers,
whom the public trusted far more, apparently, than
they did the government. Privately-minted gold coins
circulated in California as late as 1848.9
8.
The “Proper” Supply of Money
Now we may ask: what is the supply of money in
society and how is that supply used? In particular, we
may raise the perennial question, how much money
9 For historical examples of private coinage, see B.W. Barnard, “The use
of Private Tokens for Money in the United States,” Quarterly Journal of
Economics (1916–17): 617–26; Charles A. Conant, The Principles of Money
and Banking (New York: Harper Bros., 1905), vol. I, pp. 127–32; Lysander
Spooner, A Letter to Grover Cleveland (Boston: B.R. Tucker, 1886), p. 79;
and J. Laurence Laughlin, A New Exposition of Money, Credit and Prices
(Chicago: University of Chicago Press, 1931), vol. I, pp. 47–51. On coin-
age, also see Mises, Theory of Money and Credit, pp. 65–67; and Edwin
Cannan, Money, 8th ed. (London: Staples Press, 1935), pp. 33ﬀ.

Murray N. Rothbard 21
“do we need”? Must the money supply be regulated
by some sort of “criterion,” or can it be left alone to
the free market?
First, the total stock, or supply, of money in society at
any one time, is the total weight of the existing money-
stuﬀ. Let us assume, for the time being, that only one
commodity is established on the free market as money.
Let us further assume that gold is that commodity
(although we could have taken silver, or even iron; it
is up to the market, and not to us, to decide the best
commodity to use as money). Since money is gold, the
total supply of money is the total weight of gold existing
in society. The shape of gold does not matter—except
if the cost of changing shapes in certain ways is greater
than in others (e.g., minting coins costing more than
melting them). In that case, one of the shapes will be
chosen by the market as the money-of-account, and
the other shapes will have a premium or discount in
accordance with their relative costs on the market.
Changes in the total gold stock will be gov-
erned by the same causes as changes in other goods.
Increases will stem from greater production from
mines; decreases from being used up in wear and
tear, in industry, etc. Because the market will choose
a durable commodity as money, and because money is
not used up at the rate of other commodities—but is
employed as a medium of exchange—the proportion
of new annual production to its total stock will tend
to be quite small. Changes in total gold stock, then,
generally take place very slowly.

22 What Has Government Done to Our Money?
What “should” the supply of money be? All sorts
of criteria have been put forward: that money should
move in accordance with population, with the “volume
of trade,” with the “amounts of goods produced,” so
as to keep the “price level” constant, etc. Few indeed
have suggested leaving the decision to the market. But
money diﬀers from other commodities in one essential
fact. And grasping this diﬀerence furnishes a key to
understanding monetary matters. When the supply
of any other good increases, this increase confers a
social beneﬁt; it is a matter for general rejoicing. More
consumer goods mean a higher standard of living for
the public; more capital goods mean sustained and
increased living standards in the future. The discovery
of new, fertile land or natural resources also promises to
add to living standards, present and future. But what
about money? Does an addition to the money supply
also beneﬁt the public at large?
Consumer goods are used up by consumers; capital
goods and natural resources are used up in the process
of producing consumer goods. But money is not used
up; its function is to act as a medium of exchanges—to
enable goods and services to travel more expeditiously
from one person to another. These exchanges are all
made in terms of money prices. Thus, if a television
set exchanges for three gold ounces, we say that the
“price” of the television set is three ounces. At any
one time, all goods in the economy will exchange at
certain gold-ratios or prices. As we have said, money,
or gold, is the common denominator of all prices. But

Murray N. Rothbard 23
what of money itself? Does it have a “price”? Since a
price is simply an exchange-ratio, it clearly does. But,
in this case, the “price of money” is an array of the
inﬁnite number of exchange-ratios for all the various
goods on the market.
Thus, suppose that a television set costs three gold
ounces, an auto sixty ounces, a loaf of bread 1⁄100 of an
ounce, and an hour of Mr. Jones’s legal services one
ounce. The “price of money” will then be an array
of alternative exchanges. One ounce of gold will be
“worth” either 1⁄3 of a television set, 1⁄60 of an auto, 100
loaves of bread, or one hour of Jones’s legal service.
And so on down the line. The price of money, then,
is the “purchasing power” of the monetary unit—in
this case, of the gold ounce. It tells what that ounce
can purchase in exchange, just as the money-price of
a television set tells how much money a television set
can bring in exchange.
What determines the price of money? The same
forces that determine all prices on the market—that
venerable but eternally true law: “supply and demand.”
We all know that if the supply of eggs increases, the
price will tend to fall; if the buyers’ demand for eggs
increases, the price will tend to rise. The same is true
for money. An increase in the supply of money will
tend to lower its “price;” an increase in the demand for
money will raise it. But what is the demand for money?
In the case of eggs, we know what “demand” means; it
is the amount of money consumers are willing to spend
on eggs, plus eggs retained and not sold by suppliers.

24 What Has Government Done to Our Money?
Similarly, in the case of money, “demand” means the
various goods oﬀered in exchange for money, plus the
money retained in cash and not spent over a certain
time period. In both cases, “supply” may refer to the
total stock of the good on the market.
What happens, then, if the supply of gold increases,
demand for money remaining the same? The “price of
money” falls, i.e., the purchasing power of the money-
unit will fall all along the line. An ounce of gold will
now be worth less than 100 loaves of bread, 1⁄3 of a
television set, etc. Conversely, if the supply of gold
falls, the purchasing power of the gold-ounce rises.
What is the eﬀect of a change in the money supply?
Following the example of David Hume, one of the ﬁrst
economists, we may ask ourselves what would happen if,
overnight, some good fairy slipped into pockets, purses,
and bank vaults, and doubled our supply of money.
In our example, she magically doubled our supply of
gold. Would we be twice as rich? Obviously not. What
makes us rich is an abundance of goods, and what limits
that abundance is a scarcity of resources: namely land,
labor, and capital. Multiplying coin will not whisk these
resources into being. We may feel twice as rich for the
moment, but clearly all we are doing is diluting the money
supply. As the public rushes out to spend its new-found
wealth, prices will, very roughly, double—or at least rise
until the demand is satisﬁed, and money no longer bids
against itself for the existing goods.
Thus, we see that while an increase in the money
supply, like an increase in the supply of any good,

Murray N. Rothbard 25
lowers its price, the change does not—unlike other
goods—confer a social beneﬁt. The public at large is
not made richer. Whereas new consumer or capital
goods add to standards of living, new money only
raises prices—i.e., dilutes its own purchasing power.
The reason for this puzzle is that money is only useful
for its exchange value. Other goods have various “real”
utilities, so that an increase in their supply satisﬁes
more consumer wants. Money has only utility for pro-
spective exchange; its utility lies in its exchange value,
or “purchasing power.” Our law—that an increase in
money does not confer a social beneﬁt—stems from
its unique use as a medium of exchange.
An increase in the money supply, then, only dilutes
the eﬀectiveness of each gold ounce; on the other hand,
a fall in the supply of money raises the power of each
gold ounce to do its work. We come to the startling
truth that it doesn’t matter what the supply of money is.
Any supply will do as well as any other supply. The free
market will simply adjust by changing the purchasing
power, or eﬀectiveness of the gold-unit. There is no
need to tamper with the market in order to alter the
money supply that it determines.
At this point, the monetary planner might object:
“All right, granting that it is pointless to increase the
money supply, isn’t gold mining a waste of resources?
Shouldn’t the government keep the money supply
constant, and prohibit new mining?” This argument
might be plausible to those who hold no principled
objections to government meddling, though it would

26 What Has Government Done to Our Money?
not convince the determined advocate of liberty. But
the objection overlooks an important point: that gold
is not only money, but is also, inevitably, a commod-
ity. An increased supply of gold may not confer any
monetary beneﬁt, but it does confer a non-monetary
beneﬁt—i.e., it does increase the supply of gold used
in consumption (ornaments, dental work, and the like)
and in production (industrial work). Gold mining,
therefore, is not a social waste at all.
We conclude, therefore, that determining the supply
of money, like all other goods, is best left to the free
market. Aside from the general moral and economic
advantages of freedom over coercion, no dictated
quantity of money will do the work better, and the free
market will set the production of gold in accordance
with its relative ability to satisfy the needs of consum-
ers, as compared with all other productive goods.10
9.
The Problem of “Hoarding”
The critic of monetary freedom is not so easily
silenced, however. There is, in particular, the ancient
bugbear of “hoarding.” The image is conjured up of
the selﬁsh old miser who, perhaps irrationally, perhaps
from evil motives, hoards up gold unused in his cel-
lar or treasure trove—thereby stopping the ﬂow of
10 Gold mining is, of course, no more proﬁtable than any other business;
in the long-run, its rate of return will be equal to the net rate of return
in any other industry.

Murray N. Rothbard 27
circulation and trade, causing depressions and other
problems. Is hoarding really a menace?
In the ﬁrst place, what has simply happened is an
increased demand for money on the part of the miser.
As a result, prices of goods fall, and the purchasing
power of the gold-ounce rises. There has been no loss
to society, which simply carries on with a lower active
supply of more “powerful” gold ounces.
Even in the worst possible view of the matter, then,
nothing has gone wrong, and monetary freedom cre-
ates no diﬃculties. But there is more to the problem
than that. For it is by no means irrational for people
to desire more or less money in their cash balances.
Let us, at this point, study cash balances further.
Why do people keep any cash balances at all? Suppose
that all of us were able to foretell the future with abso-
lute certainty. In that case, no one would have to keep
cash balances on hand. Everyone would know exactly
how much he will spend, and how much income he
will receive, at all future dates. He need not keep any
money at hand, but will lend out his gold so as to
receive his payments in the needed amounts on the
very days he makes his expenditures. But, of course,
we necessarily live in a world of uncertainty. People do
not precisely know what will happen to them, or what
their future incomes or costs will be. The more uncer-
tain and fearful they are, the more cash balances they
will want to hold; the more secure, the less cash they
will wish to keep on hand. Another reason for keeping
cash is also a function of the real world of uncertainty.

28 What Has Government Done to Our Money?
If people expect the price of money to fall in the near
future, they will spend their money now while money
is more valuable, thus “dishoarding” and reducing their
demand for money. Conversely, if they expect the price
of money to rise, they will wait to spend money later
when it is more valuable, and their demand for cash
will increase. People’s demands for cash balances, then,
rise and fall for good and sound reasons.
Economists err if they believe something is wrong
when money is not in constant, active “circulation.”
Money is only useful for exchange value, true, but it
is not only useful at the actual moment of exchange. This
truth has been often overlooked. Money is just as useful
when lying “idle” in somebody’s cash balance, even
in a miser’s “hoard.”11 For that money is being held
now in wait for possible future exchange—it supplies
to its owner, right now, the usefulness of permitting
exchanges at any time—present or future—the owner
might desire.
It should be remembered that all gold must be
owned by someone, and therefore that all gold must
be held in people’s cash balances. If there are 3,000
tons of gold in the society, all 3,000 tons must be
owned and held, at any one time, in the cash balances
of individual people. The total sum of cash balances
is always identical with the total supply of money
11 At what point does a man’s cash balance become a faintly disreputable
“hoard,” or the prudent man a miser? It is impossible to ﬁ x any deﬁnite
criterion: generally, the charge of “hoarding” means that A is keeping
more cash than B thinks is appropriate for A.

Murray N. Rothbard 29
in the society. Thus, ironically, if it were not for the
uncertainty of the real world, there could be no mon-
etary system at all! In a certain world, no one would
be willing to hold cash, so the demand for money in
society would fall inﬁnitely, prices would skyrocket
without end, and any monetary system would break
down. Instead of the existence of cash balances being
an annoying and troublesome factor, interfering with
monetary exchange, it is absolutely necessary to any
monetary economy.
It is misleading, furthermore, to say that money
“circulates.” Like all metaphors taken from the physical
sciences, it connotes some sort of mechanical process,
independent of human will, which moves at a certain
speed of ﬂow, or “velocity.” Actually, money does not
“circulate”; it is, from time, to time, transferred from
one person’s cash balance to another’s. The existence of
money, once again, depends upon people’s willingness
to hold cash balances.
At the beginning of this section, we saw that “hoard-
ing” never brings any loss to society. Now, we will see
that movement in the price of money caused by changes
in the demand for money yields a positive social ben-
eﬁt—as positive as any conferred by increased supplies
of goods and services. We have seen that the total sum
of cash balances in society is equal and identical with
the total supply of money. Let us assume the supply
remains constant, say at 3,000 tons. Now, suppose, for
whatever reason—perhaps growing apprehension—
people’s demand for cash balances increases. Surely,